IRS initiatives to decrease audit cycle times - good ideas that need more work.

• Author: Buschel, Stephen R.

Beginning in 2002, the IRS decided to take action to decrease cycle times on examinations of large companies in the Large and Mid Size Business division (LMSB). Initially, the focus was on audits being conducted under the Coordinated Industry Case (CIC) and the Coordinated Examination Case (CEC) programs. These examinations are more structured and there is early involvement by case managers, specialists and counsel's office. Appropriate planning was critical to accomplish the examination goals. Formal examination plans are used to focus on critical areas. There is significant interaction between the examination team and the taxpayers/representatives during the planning and conduct of the examination. This worked well in the largest examinations.

In 2003, the Service initiated a program to expand the principles used in the CIC/CEP examinations to all LMSB cases, and embarked on a strategy aimed at reducing cycle time in the examination process. This required development and use of techniques such as the Limited Issue Focused Examination (LIFE) process; it was hoped that LIFE would help to better manage issues and resolve differences more efficiently during examinations. It was also anticipated that the use of the LIFE process in appropriate cases would help to relieve the strain on limited IRS resources.

The IRS was also active in developing and encouraging other initiatives, such as the use of pre-filing agreements, fast-track resolution alternatives, and the Industry Issue Resolution process, to help accelerate examinations.

In light of the perceived need to increase enforcement due to the proliferation of "abusive tax shelters," the IRS also wanted to create a structured process for use in the information-gathering phase of examinations.

The IDR Process

The issuance of Information Document Requests (IDRs) and their response times have always been an area of differences between the IRS and taxpayers/representatives, as to response times, frequency of the issuance of IDRs during the examination process, adequate responses, etc.

The Service, in January 2002, updated Internal Revenue Manual (IRM) Section 4.45.13.4.10, Individual Document Request Management Process, to formally lay out the IDR process. As part of this management process, the IRS is requiring a 20-day initial response time for IDRs, even though this is not required by new IRM Section 4.45.13.4.10.

15-day delinquency: When a taxpayer's IDR response is 15 days late, IRM Section...